2015 Lending Outlook

Industry insiders are bullish on lending growth but say banks need to make significant customer experience investments to compete with alternative lenders.

With economic indicators rising at the end of 2014, industry insiders expect an upward trend for lending in 2015. But, for banks to capitalize on burgeoning demand, it will require playing catchup in some key technology areas. To get a sense of what’s at stake and what’s needed to compete, we polled three banking veterans. Here’s what they had to say.

Lending activity and technology infrastructure: While IDC Financial Insights absolutely expects a rise in lending activity, particularly in the SMB segment, banks face stiff competition from alternative lenders. Such lenders are now leveraging years of automation investments to aggressively enter the traditional commercial lending market.

For banks to compete, they must let go of the manila folder, embrace streamlining, and speed lending decisions. This doesn’t mean an entire complex lending process needs to be completed in seconds or even hours, just that a decision can be reached and communicated quickly.

Customer experience: Banks should pursue a multi-faceted approach in this area. It starts with mobility. At the enterprise level, banks should provide lenders full-capability lending tablets and send them into the field. Also, banks need to enable pre-populating forms with data they already have. Beyond speeding lending decisions, this reduces customer frustration with providing the same information numerous times. And adding transparency is critical. Everyone’s visibility expectations are heightened due to the “FedEx Effect.”

Regulatory landscape: Although there are no imminent new major regulations, banks need to design systems to respond to any type of future regulatory guidance. When developed with the proper vision, such systems can also be leveraged for marketing or segmenting purposes, enabling banks to drive business value from their regulatory investments.

Technology investments to enable competitive lending strategies: Customer engagement technologies are critical to ongoing trust rebuilding post-GFC. Customer engagement goes deeper than customer experience by adding value to lending products. It means integrating systems and processes to enable effective cross-selling after onboarding a customer. Essential technologies include big data and analytics as well as various forms of cloud computing.

Lending activity and technology infrastructure: While bankers in all US geographies are expecting lending growth, they’re also realizing they need to compete with alternative lenders — which are experiencing 100 percent asset growth rates. For banks, this means traditional paper-based processes just won’t work anymore.

Customer experience: The banking industry has expected commercial borrowers to tolerate a lesser customer experience due to loan complexity. For example, our recent research suggests over 85 percent of banks up to $10 billion in assets have no online application option, no automated approval process, and no automated pricing.

Alternative lenders have used this gap to market and originate small-business loans in extraordinary volumes over the past three to four years. SMB borrowers are now gravitating to alternative lenders, even if the loans are more expensive, because they believe calling a bank will take too long.

Clearly, banks need to close this customer experience gap.

Regulatory landscape: Although there’s little dramatically new, the most recent Office of the Comptroller of the Currency guidance states banks need to look toward automation and technology to improve risk management. So, regulators clearly expect banks to have robust systems for compiling and tracking data accurately — it’s not optional any more.

Technology investments to enable competitive lending strategies: This is precisely the area bankers are asking about. We advise banks to make borrowing easy and provide a competitive customer experience. We also advise against the shotgun approach, as the investments required for each market segment can be quite different. For profitability, banks must pick the segments they want to target. Then, they must adopt the niche technologies that permit attracting borrowers, safely originating loans, and properly managing risk within those segments.

Improve Visibility, Embrace Mobile

Darren Lowe, VP Information Technology, Stearns Bank

Lending activity and technology infrastructure: Although we’re already busy, we’re considering a focus shift toward Small Business Administration lending. We’re seeing increasing opportunities for SBA loans as well as for lending in general.

With respect to technology, we’re attacking it on multiple fronts to streamline systems and get off of spreadsheets. Instead of entering information on a new prospect a half-dozen times, we’re adopting banking systems and automated workflows to reduce entry to one. And, where there were no software systems, we’re putting technology solutions in place.

Customer experience: Improving visibility into our lending process is very important to us, particularly with respect to providing customer insight into the status of supporting documentation. We’re working with our technology partners on a portal to address this need.

More generally, banks should be continually assessing the latest mobile and online technologies to make the loan processes as simple and transparent as possible. This is especially important with younger generations becoming business leaders — they won’t tolerate banks that don’t keep up in this regard.

Technology investments to enable competitive lending strategies: We’ve talked to many peers who are still paper-based. This is increasingly unacceptable from a compliance standpoint as well as for profitability.

Instead, we’re undergoing a complete transformation to flexible, customizable technology solutions, with automated workflows that integrate well with each other and with our core systems. We’re also investing in end-user training to ensure our staff can take full advantage of these new solutions. And, going forward, we expect to constantly evaluate advancements in loan origination and customer engagement technologies.